Hennes & Mauritz, the world's second-biggest fashion retailer, has warned of a ''very negative'' impact from higher purchasing costs for the rest of the year due to the strong U.S. dollar. As Hayley Platt reports it also dented second-quarter profits.
The world's second-biggest fashion retailer missed its targets for the second quarter. H&M is feeling the pinch as the strong dollar drives up costs. And it warned things could get worse in the third and fourth quarters. Gross margins were slightly weaker too and its shares fell around 2.5 percent. H&M sources 80 percent of its clothes in Asia which it pays for in US dollars and sells mostly in Europe. In the last three months it's had to pay more for raw materials, currencies and transport. Jeremy Stretch is head of strategy at CIBC. SOUNDBITE: Jeremy Stretch, European Head of Strategy, CIBC, saying (English): "I think some of those factors will start to dissipate over time and I think it is going to be the case that we are going to see a number of corporates once again being forced to suggest that their top line numbers are being impacted by currency volatility in currency variations because of the strength of the dollar that we've seen over the past 6-9 months in particular." Second quarter pre-tax profit was up by just over 1 billion dollars and sales for June were up by 14%. But that's still behind its Spanish rival Inditex, owner of Zara. It's profits jumped 28 percent in the first quarter. The chain benefitting from its clothes being largely manufactured in Europe. H&M is now turning its attention to company ethics in the hope it will drive up sales. The fashion industry is increasingly under increasing pressure to be wary of pollution when choosing its textile factories and the conditions of its workers. SOUNDBITE: Jeremy Stretch, European Head of Strategy, CIBC, saying (English): "If you're talking about H&M, you're often talking about a younger demographic and those are perhaps the sector of the market which are more mindful of being ethically beneficial and gaining credit in that context." H&M has promised that by 2018 60 percent of its garments will be made by workers earning a "fair living wage." By 2020 it also hopes all its cotton will be sourced sustainably, up from the current 20 percent.